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07 October 2012

New Fund: AmIncome Flexi

In view of current uncertainties still lingering around investment universe, bond was considered as one of the asset class that most investors seeks to preserved their asset value, albeit lower risk. Just as the name of the fund, it's a flexible bond fund which has an interesting early repayment features. Let's have a look.

The Fund is a 3-year close-ended bond fund that aims to provide annual income distribution throughout the duration of the fund. To achieve the investment objective, the fund intends to invest its NAV in a portfolio of domestic and/or foreign sovereign issued bonds and corporate bonds.
  • Domestic bonds:
    --> minimum credit rating will be “A” rated by RAM or MARC’s equivalent. 
  • Foreign bonds:
    --> minimum credit rating will be “A” rated by their respective local credit rating agencies which denotes strong capacity to meet financial commitments and/or “BB” rated by S&P or Moody’s equivalent at the time of investment.

As this is a close-ended fund, the Investment Manager will purchase bonds which will be held until its respective maturity. These bonds will generally have shorter or similar maturity tenure to the Fund’s maturity. The Fund employs a flexible investment strategy as follows:-

  1. The Investment Manager will not actively adopt a trading strategy unless there are changes or expected changes in interest rates resulting in bond price changes, for the purpose of maximizing returns of the Fund over the Fund’s tenure of three (3) years;
  2. The Investment Manager may also at its discretion dispose off a bond to mitigate currency risk for the benefit of the Fund; and
  3. The Investment Manager may also opt to dispose off a bond when it has achieved at least 15% cumulative return before its maturity, and return the proceeds of the bond (which includes principal and realised gains such as coupons received, capital gains and currency gains) to the investors.

In the event of a credit downgrade, the Investment Manager may liquidate the particular bond affected if the Investment Manager at its discretion feels that there is a likelihood of credit default. Changes in credit rating will have no impact upon the price of the bond at maturity. However, if the Investment Manager chooses to sell the bond prior to the bond’s maturity, it may result in a capital loss and this will be borne by investors of the Fund. A credit downgrade means that credit risk is increased but does not constitute default.

The Fund may be investing in countries where the regulatory authority is a member of the International Organisation of Securities Commission (IOSCO) which include but not limited to Malaysia, Australia, New Zealand, Korea, Hong Kong, Singapore, Philippines, Indonesia and Thailand. As the Fund may invest in foreign currencies denominated bond, the Investment Manager may use derivatives for currency hedging purpose.

Early Repayment Mechanism?

When a bond held in the Fund has achieved 15% cumulative return at any time before its maturity, the Investment Manager may sell down the bond and realize the gains. The proceeds of the bond (which includes principal and realised gains such as coupons received, capital gains and currency gains) will be returned to the investors. In this respect, NAV of the Fund will be reduced accordingly and the units of the Fund will be adjusted according to the proportion of that bond in the Fund. This will result in Unit Holders holding lesser units after Early Repayment. In the case of Early Repayment, there will be no adjustments to NAV per unit of the Fund.

The Fund is suitable for investors who seek:

  • an investment that provides regular income and potentially higher returns than the 1-year AmBank (M) Berhad Conventional Fixed Deposit Rate (fixed as at Commencement Date); and
  • an investment that provides lower risk than equities.

Source: AmMutual


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